Monday, January 31, 2011

After President Barack Obama chose the beers of Wisconsin microbrewer Hinterland Brewing Co. for his upcoming Super Bowl party, Scott Smith, owner of East End Brewing in Homewood, which makes less than 2,000 barrels a year, launched a campaign on Facebook to have his beers available at the White House as well, noting it’s “only fair.”

If people vote with their feet, then Texas has won the election. In particular, the Triangle is a hot destination. Then why is Dallas looking at Rust Belt Pittsburgh with envy? It's about talent and innovation:

It's natural to hail the Pittsburgh Steelers for winning Super Bowls. But give props to the city of Pittsburgh, too, for rebuilding and reshaping a Rust Belt economy, and creating one of the country's most livable cities.

The path to recovery is worth recounting, not only because Pittsburgh fans are streaming into Fort Worth, where the Steelers are staying for next Sunday's title game. But it could be instructive for leaders in North Texas, who keep talking about strengthening local colleges, fostering more collaboration and creating Tier One research centers.

Pittsburgh's renaissance was largely built around its world-class universities and their strengths in medicine and computer science. That concentration of academic talent and market power may be unrivaled anywhere short of Boston.

Without immigration, the population of Harris County is expected to be only 4.3 million, not much increase at all. But using the immigration rate from 2000 to 2007, Harris County is expected to be 6.8 million, a 70% increase or almost 1.8% growth per year. The SMSA is expected to grow even faster, from 6 to over 11 million by 2040.

Proximity to Mexico, particularly large border cities, is what drives immigration to Texas. It's not the state policy (e.g. low taxes) that is the crux of the attraction. For all its growth, Houston lacks brain power. From the same article:

Again, choices abound. Will Houston become the Pittsburgh and Detroit of the 21st centuries?

Those cities rode their industries into the ground—first Pittsburgh and the steel industry in the 1970s and Detroit and the auto industry today. Or will Houston invest in the diversified technologies of the 21st century?

While Houston has lots of money, Houstonians do not invest as much in high technology investment as investor do in Dallas-Fort Worth and, of course, Austin. Houstonians know what a good real estate or oil deal looks like, but they don’t know nearly as much about a bio- or nanotechnology investment. For comparison, Austin has about three times the venture capital investment even though its economy is only a fraction of the Houston economy.

Two industries in particular might the targets of that investment.

The information technology will have largely been exploited by 2040, unless a whole new technology like quantum computing becomes feasible. At any rate, Houston has never been a leader in information technology anyway. Rather it is the biological technologies that promise the next wave of technological innovation, and the Texas Medical Center could be a platform for participating in the growth of that industry.

The high tech spinoff from the Medical Center, however, has been disappointing to date, perhaps because of the relatively low venture funding in Houston. Talented entrepreneurs with good ideas and technologies need to move to the coasts to get funding. Will Houstonians stop this brain drain by 2040 or not?

In this sense, Houston is way behind Pittsburgh. The region has most of its eggs in the basket of energy. The remark about Detroit and Pittsburgh is a reference to over-dependence on one industry. Houston, we have a problem. The booming population masks a vulnerable economy. Even a more diversified Dallas is considering the value of the Pittsburgh model.

I'll circle back to our fixation with population numbers. The metric is almost useless, a relic of the industrial era. We need to rethink how we measure regional success.

Saturday, January 29, 2011

Economic Analyst Bill Watkins told a group of 300 in Bend that he is very concerned about the first significant out migration in the last couple of decades. Nancy Lynche owns Bend Storage and Transfer and says more people are leaving town: “Probably 90% moving out. And it’s mainly, if they’re in the workforce, they’re going to where they can, first of all get a job.” Lynch says working families are heading to Texas and North Dakota because that is where the jobs are.

The observations are anecdotal and others have the exact opposition impression of the Bend migration story. The narratives are compatible. Lots of people are leaving with a substantial number moving into town. We exclusively focus on outmigration, missing half of the story.

Thursday, January 27, 2011

Find out how Pittsburgh is leading the way with a new initiative connecting innovative regional entertainment technology with the traditional Hollywood entertainment business – and learn how your company can get involved!

But the Pittsburgh hub idea is also implicit in the Burgh Diaspora theme (Pittsburgh as the center of a huge universe of expats and would-be in-migrants), which edged up another notch in popular credibility the other day, beyond Jim's blog and beyond the occasional column in the Post-Gazette, with the launch of Carl Kurlander's Six Degrees of Pittsburgh blog at the PG. I'm hoping that Carl keeps up blogging and that the comments start to roll in, because the PG's web audience is huge. The Diaspora is more than Steeler Nation. Carl is making the right case: the Diaspora, and the idea of regional, national, and global connectedness, are keys to Pittsburgh's economic future. He's talking about entertainment and Hollywood and Pittsburgh as a storytelling and filmmaking hub. But those are just examples of a broader model that cuts across economic sectors.

I was [filming both the show and the movie simultaneously] a bit. Towards the end of the movie, I had to go back and finish on I Am Number Four [in Pittsburgh] so I became very familiar with the flight patterns from Pittsburgh to Los Angeles. There’s only one direct flight a day at 7:30 and if you can’t make that, then you have to go through Atlanta or Washington or all these places, so you really hoped you’d make that 7:30 flight.

The conference has sent an e-mail to area businesses urging them to book the flight from Pittsburgh International Airport as much as possible over the next three months for trips to Europe, the Middle East and India in a bid to persuade Delta to continue the flight. The carrier has not committed to keeping the flight beyond Aug. 31.

"To keep the service in place, business fliers need to show Delta that they value the flight by using it whenever practical," Peter Kalis, chairman of the conference's transportation and infrastructure committee, wrote in the e-mail. "Delta will launch daily service on June 1 for the summer months. But the flight's performance over the next 90 days will go a long way toward determining what happens next fall."

The entertainment industry is the new kid on the block in Pittsburgh and isn't a high-priority in terms of pet projects like the Delta connection to Europe. The Allegheny Conference is providing poor leadership. Why do they hate innovation?

What is the iconic geography of the last Great Recession? Some think that Detroit and its litany of ruin porn is emblematic of the latest economic implosion. I disagree. Behold Sun Belt suburban blight:

THE statistics are worthy of Detroit or Newark: almost half the children in the local schools are from families poor enough to be eligible for free or cut-price lunches; a tenth of households qualify for food stamps; one in eight residents gets free meals from soup kitchens or food banks; perhaps one in 12 has suffered a recent spell of homelessness. Yet the spot in question is not a benighted rust-belt city, but Sarasota, Florida—a balmy, palm-studded resort town on the shores of the Gulf of Mexico.

The Sarasota-Bradenton metropolitan area, a two-county sprawl of condominiums, marinas and retirement homes, saw the proportion of people living below the poverty line rise by more between 2007 and 2009 than any other big city in America, from 9.2% to 13.7%, according to the Census Bureau. Nor is Sarasota an aberration. All the other metropolitan areas that saw jumps of four points or more are also formerly fast-growing southern and western cities: Bakersfield, California; Boise, Idaho; Greenville, South Carolina; Lakeland, Florida and Tucson, Arizona. Arizona now has the second highest poverty rate in the nation, after Mississippi. The especially severe housing bust that ended the breakneck growth of these sunbelt cities has brought with it deprivation on a scale they have never previously encountered and are struggling to address.

Poor inner cities in the Midwest and north-east still have higher overall poverty rates, but in recent years, notes Elizabeth Kneebone of the Brookings Institution, a think-tank, poverty has grown fastest in the suburbs, especially in the sunbelt. A third of America’s poor, she notes, now live in suburban areas. Many cities in the sunbelt, adds Margaret Simms of the Urban Institute, are suffering from what it calls “double trouble”, meaning a plunge both in property values and employment, with concomitant jumps in poverty. This trend is significant, says Scott Allard of the University of Chicago, since it is harder for the poor to seek assistance and to hunt for jobs amid the suburban sprawl.

In years to come, Sports Illustrated will turn its attention from Aliquippa to Sarasota. Suburban poverty will yield the hardened football players that used to hail from Youngstown or Beaver Falls. Neighborhoods are full of empty houses. Developments remain unfinished. Legacy costs will cripple Sun Belt municipalities as the population ages rapidly and young people leave in droves.

The J&L mill, battered by cheap, inventive Japanese products and taken over by the Ohio-based LTV Corporation, began shutting down nearly 30 years ago, and closed for good in 2000. Pittsburgh has made a successful transition to the new economy, but "Aliquippa's in a weird place," says Pitt labor economist Chris Briem. "It's not the center of the region, it's not the city, it's not quite rural. What is the competitiveness of towns that used to have a reason for being—and don't anymore?"

Compared with the U.K. and Australia, the U.S. housing market is more hopeful, with a host of regions — notably Houston, Dallas, Austin, San Antonio, Phoenix and Kansas City — with affordability rates around three and under. Low prices by themselves, of course, are no guarantor of success; in economically challenged places like Detroit and Cleveland, out-migration and high unemployment have driven prices down.

But in many, if not most, cases affordability has promoted economic and demographic growth. Generally speaking, affordable markets tend to draw migrants from overpriced ones, for example to Houston or Austin from Los Angeles or New York.

Nor is this necessarily a case of “smart” people heading to dense, expensive cities while the less cognitively gifted head to the low-cost regions — as news outlets like The Atlantic have claimed. In fact, the American Community Survey reveals that between 2007 and 2009 college graduates generally gravitated toward lower-cost, less dense markets — such as Austin, Houston and Nashville — than to the highly constrained, denser ones. Overall growth in affordable markets — with a ratio of three or four — among college graduates was roughly 5%; in the more expensive places , it was barely 3%.

In short, the world is not spiky. Real estate refugees have been fleeing California for at least two decades. Kotkin isn't writing anything novel. However, he doesn't engage in any meaningful way Richard Florida's thesis about the college educated cramming into high-priced markets such as NYC (e.g. Brooklyn). Yes, the large and the cool cities do spit out a significant number of people seeking cost of living relief. But they also continue to pull them in. How do we explain that?

Those who study migration are familiar with the interplay between source and destination. Flows to a place beget counter-flows with the source region. The zero-sum game presented by Kotkin and Florida paints a deceptive picture, one of picking winners and losers (your city is either Dallas or Detroit). The result is a poor understanding of economic geography, obsessing numbers that don't really matter:

A few years ago, Paul Gottlieb, an economist at Case Western Reserve University in Cleveland, took a look at whether growth without growth was possible. He did so by comparing population growth and growth in real per-capita income in the 100 largest metropolitan areas. Most of the results were not surprising. Many thriving metros — Atlanta, Austin, Dallas, Phoenix — were above the national average in both categories. Many struggling ones, including Cleveland itself and all the metropolitan areas in Upstate New York, were below the average in both categories.

Surprisingly however, Gottlieb found that almost half of the 100 largest metro areas fit neither category. They're either "wealth builders" — places such as Chicago, Detroit, Memphis, Pittsburgh and St. Louis — that saw income go up faster than population, or they're "population magnets" — places such as Daytona Beach, El Paso, Knoxville, Orlando and Portland — that saw the reverse.

The "wealth builders" are of particular interest – places where population has slowed down or stagnated, yet are still adding income and wealth. Pittsburgh, for example, has been losing population for decades. Yet nobody thinks of Pittsburgh these days as an economic failure. It’s reinvented itself, adjusted to a smaller population, and today thrives on a “new economy” that emerged from the old. St. Louis is the same way.

Portland is not a model worth emulating. The same goes for the right-to-work, laissez-faire Sun Belt states. A lot of struggling regions are receiving bad advice from so-called experts who are hawking nothing more than population statistics. The world is either spiky or it's flat. Choose your economic development paradigm.

However, perhaps the biggest surprise is the metropolitan area that slipped into the number two position between Baltimore and Washington. The Pittsburgh metropolitan area, which may have faced the most severe economic challenges of any major metropolitan area over the past 40 years, achieved per capita personal income growth of 8.2 percent. The Pittsburgh gain is all the more significant in view of the local financing difficulties which placed the city of Pittsburgh in the near equivalent of bankruptcy under Pennsylvania's Act 47. However, as is the case in on number of metropolitan areas, the central city has become much less dominant and no longer seals the fate of the larger metropolitan area. Today, the city of Pittsburgh accounts for only 15 percent of the metropolitan area population. ...

... All of the remaining bottom 10 positions were occupied by metropolitan areas that have developed a reputation for strong growth. Tampa St. Petersburg ranked 6th worst, with a per capita income loss of 3.3 percent. Portland (Oregon) ranked 7th worst with a personal income loss of 2.5 percent. Riverside San Bernardino, with the lowest per capita income ranking out of the 28 metropolitan areas, ranked 8th worst with a per capita income drop of 2.2 percent.

The numbers are surprising because we incorrectly associate metro success with population gains and inmigration. No doubt that Portland attracts talent. But the dividend is missing. What is wrong?

The connection between income, earning power and vitality on one hand and educational attainment on the other is one of the strongest relationships that we have to work with. Census data for 2006-08 show that nearly 80 percent of the variation in per capita income levels across the 50 largest metro areas is explained by differences in the share of adults with a bachelor's degree or higher. If other cities have higher incomes, it's because they have better educated populations.

Over the last few years, Portland has been a choice destination for college educated migrants. That suggests that the metro does a lousy job of educating its residents. Is Portland spending too much on cool urban amenities? At the very least, the declining per capita income casts a shadow on the Portland model. Staying weird is coming at a steep price.

Thursday, January 20, 2011

A coalition of organizations, led by the Portland Business Alliance, recently published a provocative report on the health of the Portland metropolitan region's economy. Its eye-catching claim that the economy of the Portland region looks more like that found in declining, rust-belt Cleveland or Pittsburgh than in thriving, high-tech Seattle, Minneapolis or Denver generated cries of alarm both in the media and throughout the community.

Cortright has a lot riding on the Portland brand. He'd like to sell that success story to struggling Rust Belt cities such as Akron. That's tough to do when your political rivals are busy shooting holes in your supposed urban utopia. In the defense of the town that Cortright built, Pittsburgh is quietly (i.e. disingenuously) put to the side:

We have the basis here for both a great place to live and a great economy. We have to pursue both in a way that reinforces our strengths while addressing key weaknesses. Portland might look like Cleveland to an out-of-work pipefitter looking at week 99 and wondering where next month's mortgage will come from. But this is not Cleveland, no matter how you interpret the statistics. At a minimum, acting as if it is Cleveland based on a selective culling of statistics won't make things any better.

One can't replace "Cleveland" with "Pittsburgh" and make the same claims. In fact, Pittsburgh is being touted as the New Portland. I take exception to that comparison. There are jobs in Pittsburgh. Per capita income is on the rise. The region is tomorrow's success story, not yesterday's.

It's abundantly clear that the economic crisis and Great Reset have caused mobility -- long a hallmark of the American economy -- to stall, making it harder for both individual workers and local economies to adjust to new economic conditions. According to Frey's research, it has slowed the long-running flow of younger people and college grads to the Sunbelt, tilting the landscape of talent retention and attraction toward larger cities and metros, while reinforcing the position of tech centers and quality-of-place destinations like Austin, Raleigh-Durham, Seattle, the Bay Area, Denver, and Portland. At the same time, it appears to have put older Rustbelt metros back on the talent map, with some like Pittsburgh actually registering real gains.

Tuesday, January 18, 2011

The energy industry has a lot to do with the relative good times in Texas and Oklahoma. Given all the hype about Marcellus Shale gas, where is the boom in Southwestern Pennsylvania? From yesterday's Washington Observer-Reporter:

About six months ago, Washington and Butler counties were in the news as the only two Southwestern Pennsylvania counties that added population during the past decade.

The figures, produced by the U.S. Census Bureau, showed that from 2000 to 2009, Butler County added about 10,000 people, while Washington County gained nearly 5,000 residents in the decade.

News of the two counties arose again last week, when the U.S. Department of Labor's Bureau of Labor Statistics released employment and wage information comparing 2010's second quarter against the comparable quarter for 2009 for the 326 largest counties across the U.S.

This time, Butler and Washington counties rose near the top among wage-gaining counties on a national basis. ...

... It's safe to assume that the energy industry was responsible for much of the wage gain in both counties, although the case could be made for a diversified economy helping to play a role in Washington County's strong showing.

Over the past year, Westinghouse, which designs and builds nuclear power plants around the world, began moving several thousand highly paid workers to its new Cranberry campus in Butler County.

In Washington County, which began billing itself as the "Energy Capital of the East" last year, the growth of companies involved with the exploration and drilling of the Marcellus Shale for natural gas has created thousands of new jobs in the area. Southpointe alone now counts more than 50 energy-related companies, while other smaller drilling and supply companies have taken up residence in various locations within the county.

The above should be a bigger story. Instead, we read about the real estate market that didn't bust because it never boomed. The economic tortoise beating out hares such as Las Vegas. Rust Belt mesofacts still dominate headlines. Young adults continue the pilgrimage to Portland to swell the ranks of the unemployed or chronically under-employed. Boom goes Pittsburgh.

Wednesday, January 12, 2011

While I condemn policies designed to keep talent from leaving a region, brain drain is real. Places with a negative net migration of college graduates qualify. However, the local production of talent may render that deficit moot. We should also disaggregate the numbers to figure out if the issue is inmigration or outmigration. We could also look at different demographic cohorts to get a better handle on emerging trends.

The movement of African-Americans has also shifted the distribution of the college-educated black population. In 2009 the metro area with the largest share of college-educated blacks was Washington D.C., just ahead of San Jose, Calif., which had the largest share in 2000.

San Jose, in the heart of California's Silicon Valley, saw its share of African-Americans with college degrees fall as the state bled residents over the decade. Atlanta, Raleigh and Nashville, Tenn., were all among the top five cities with the largest share of 25-and-over blacks with college degrees.

Several big northern cities have fallen down on the list of cities with the highest concentration of black college graduates, though in many cases their concentration of college-educated blacks has grown as more Americans of all races have graduated from college. In 2000, for instance, the Boston metro area had the nation's sixth-highest concentration of college-educated blacks. In 2009 the city was fifteenth among big metro areas. In Youngstown, Ohio, the metro area lost 12.3% of its black college graduates from 2000-2009, compared with a 3.2% decrease in 25-and-over blacks overall.

Conor Dougherty of the Wall Street Journal is keen to point out that the Sun Belt is gaining at the expense of the Rust Belt. Are the bulk of black college graduates leaving Boston and Youngstown heading for Atlanta and Raleigh? A lot is left to the imagination. Regardless, the loss of black talent in Youngstown is stunning and scary. If I'm writing for the WSJ, that's where I investigate. Dougherty's anecdote about the Princeton professor moving to New Orleans (the biggest loser of African-Americans from 2000-2009) is a head-scratcher.

Among the top 10 metropolitan areas with the fastest average net growth in the number of arrivals with college degrees between 2007 and 2009, seven were in the south and southwest, including Austin, Texas, and Raleigh, N.C., according to an analysis of Census data by William H. Frey, a demographer at the Brookings Institution in Washington, D.C.

The new data mirror the trend in recent years of the South outpacing other parts of the nation in both migration and population growth.

Some shifts in the migration of individuals with bachelor's degrees are difficult to explain. The growth could reflect college-educated workers stuck in a particular area, Mr. Frey said, rather than lured elsewhere by better job prospects. The Census data measure the net number of migrants to and from metro areas. That means that in some cases growth reflects that fewer people are leaving than in the past—which could occur if workers are stuck in underwater mortgages or unable to relocate for other reasons.

Meanwhile, a city with a major university, such as Austin, Texas, is likely to have lured workers as well as retained more graduates who couldn't find work elsewhere.

I hope Brookings publishes Frey's findings. I'm curious to see how the recession is affecting talent migration. The five metros bleeding college graduates the fastest:

Detroit

Orlando

Cleveland

Rochester

New York

It's difficult to get a read on the situation without disaggregating the data. I'm anxious to find out how Pittsburgh fared. I suspect well, but that's a guess. I'd also like to know where the talent is going for each metro. Digesting Dougherty's two articles, the situation in Cleveland is dire.

Just three years later, the 29-year-old Ohio native -- he's the one in the hooded sweatshirt and jeans -- has built an Internet radio software and hardware maker whose customer list has ballooned to include Target, Sears, Costco, Amazon.com and home-shopping big-leaguers QVC and HSN.

Now [Jake Sigal] is set to feature his firm's work at the International Consumer Electronics Show -- the world's largest consumer technology trade show -- in Las Vegas on Friday, showing off the latest Livio Radio products conceived and engineered just south of I-696 in Ferndale.

Livio produces devices that tap into your home Internet and allow you to listen to free Internet radio stations from around the world. It's content you can get for free elsewhere, but his boxes make it easier for the average consumer to simply turn on and press "Play."

Economic conditions here in the Rust Belt proved an important catalyst for Livio, which was able to attract engineering talent in the early days at a fraction of the cost -- all Sigal's start-up budget allowed.

Ironically, shrinking cities are full of greenfield opportunities. Costs are low and talent plentiful. It is ideal for companies such as Livio.

The democratization of economics owes much to the financial crisis that first hit in 2007. That ongoing catastrophe, which few economists predicted, tarnished the profession’s reputation, prompting some to look elsewhere for answers. They turned to — where else? — the Internet, where vast amounts of economic data that had once been hidden from public view were now online. Sites like FRED, maintained by the Federal Reserve Bank of St. Louis, enabled anyone with a connection to the Web to download data on everything from local home-price indexes to credit-card balances to weekly fluctuations in diesel prices.

At the same time, a growing army of knowledgeable “econo-bloggers” began analyzing the data available online. Strikingly, many of the authors of these blogs — the brains behind the Big Picture, Calculated Risk, Mish’s Global Economic Trend Analysis and others — aren’t academic economists but people with real-world experience in financial markets. Their Web sites offer sophisticated interpretations of economic data and hold passionate debates with their readers over the merits of the data. As a result, economic data that were formerly greeted with grudging acceptance by the public — the latest unemployment figures, for example — are now the catalyst for endless popular exegeses.

While economic development professionals are still debating the value of social media, bloggers such as Aaron Renn (The Urbanophile) are providing a forum for an engaged citizenry to take charge of regional fortunes. Nowhere is this more evident than in the Rust Belt. An example recently popped up in my email inbox:

In an effort to improve the Kittanning community by collecting local ideas and promoting the area to the outside world, local resident Michael Rizzo has brought his idea for economic stimulation to life with the creation of www.refreshkittanning.com.

“The basic mission of the project is to create a place where members of the community can share ideas about how to inspire entrepreneurship and development in town and in this area,” said Rizzo. “On the website, each month we will have a new featured topic that deals with development, economic development, or a related topic. People can go there, share their ideas, and the ultimate goal is kind of a twofold goal. We hope that people in the community can go to the website and if they see a need for something they might consider investing in it, or if an outside entrepreneur notices a need for something in the community, they might be interested in either starting a business or investing in a business.”

I recently started a project to revitalize Kittanning Pa - (www.refreshkittanning.com). Ironically I've approached many politicians and they don't want to help, unless they can take the credit. The other problem with some of these groups is they take lots of public $money, and no one holds them accountable if they don't bring in business.

Instead of waiting for the local leadership to fix things, Michael Rizzo is taking matters into his own hands. I've run across similar stories elsewhere. Lay people don't understand the value economic development professionals bring to the table. That's partly a public relations problem. It's also a transparency issue.

A lot of bad ideas are replicated all over the country. I focus on brain drain. A cottage industry has formed around retaining talent. It's ill-conceived, but widely popular. Someone needs to hold these policies accountable. The press doesn't do it. So, bloggers fill the void. Don't waste time and resources on arresting brain drain.

Refresh Kittaning will succeed if Rizzo can successfully engage fellow residents. Doing so can be difficult. Might I recommend starting a blog?

Thursday, January 06, 2011

The Great Recession signaled the end of a long economic cycle. I argue that we can define, in part, the era in terms of migration. The very act of reshuffling the US population fueled the boom of many Sun Belt cities. The growth seemed to feed on itself and ultimately proved unsustainable. The result is a new landscape of failed cities:

A traditional city in decline is one that has suffered a sustained population drop, leaving behind empty houses, apartment buildings, offices and storefronts. Cleveland and Detroit, for instance, suffered from the erosion of manufacturing and the loss of residents, who left in search of jobs.

Instead of eroding a particular industry, however, the housing bust left a glut of homes because of overbuilding and the foreclosure crisis. Follain argues that the future of these cities is threatened in similar ways to that of Rust Belt cities.

"Long-vacant neighborhoods are going to develop, and we can imagine what can happen," he said, including potentially higher crime and lower property taxes.

The picture painted is a bit crude. People just didn't leave Cleveland and Detroit in search of jobs. Many left those cities for the suburbs. Also overlooked is the collapse of inmigration. Still, the shift in economic geography is striking. Cities associated with the dominance of manufacturing declined along with that sector. Likewise, we expect cities associated with the dominance of migration (e.g. construction jobs) to suffer a similar fate. The macroeconomic climate no longer favors metros such as Las Vegas and Miami.

I think this bodes ill for regions such as Silicon Valley and San Francisco. There is much more to these economies than a swelling population. However, they are dependent on the influx of talent. There is trouble in paradise:

But the growth comes with caveats. The population increase locally has largely been fueled by births and foreign immigration—and not through domestic migration, according to data from California's Department of Finance, which released new county-by-county population and migration figures last month. That means more people are still leaving for other states nationwide than coming in.

That is something of a red flag, say economists. Migration figures and population data are closely watched here because of how those affect the local work force. Executives of Silicon Valley tech companies and local leaders are fond of saying that the Bay Area's most important asset is its people, and they would like to see the talent base constantly renewed.

Both the Bay Area and Silicon Valley have attracted the well-educated and entrepreneurial in droves. As a result, these regions do a lousy job renewing the talent base organically. There was no need to stress improved local education because other countries and regions supplied the human capital. That's a precarious position with the war for talent heating up.

Future pathways of foreign born talent are difficult to divine. Immigration policy is notoriously capricious. Emerging markets are increasingly attractive. Domestic talent flows seem to be more predictable. We expect smarter cities to get smarter. That should reassure some in Silicon Valley.

“The whites who live in Scranton are disproportionately stupid low-class whites”. So said blogger Half-Sigma, citing “Wikipedia”. Commenter Joe Walker wrote: “the younger, better educated whites [have probably] moved [from Scranton] to places like New York City”. This does seem an attractive theory to explain the trends seen here (albeit able to easily devolve into Chicken-or-Egg-ism). But is it true? ...

... Among young-adults, Scranton-Metro is better-educated than Boise Metro. Half-Sigma’s theory, that “stupid” Scranton loses droves of its smart youth, is wrong.

Boise is one of the darlings of the migration economy. Scranton is a Rust Belt loser. How can Scranton be smarter than Boise?

The above assertion is tenuous. It is also representative of Rust Belt demographics that are still dealing with the legacy of industrial decline. The population of young, college educated adults is growing in the part of the United States that many think of as a backwater or, more commonly, flyover country. How we imagine Scranton and Boise is yesterday's news, despite the fixation with the latest Census data.

Over the last decade, a number of Rust Belt cities have sported impressive gains in educational attainment. In hindsight, this was an indicator of the demise of the migration economy. Contrary to what Richard Florida predicts, talent was flocking to some of the most inexpensive places in the United States. Creative Class theory does a good job of explaining the economic geography of the past 40-years. It will do a lousy job of predicting the future.

In Pittsburgh, Google can have talent density on the cheap. Northern Appalachia has a glut of college educated people. That's why global software companies locate in downtown Youngstown. Cleveburgh has a quality of workforce that few regions in the world can match. And unlike Silicon Valley and the Bay Area, Pittsburgh doesn't have to import human capital. The whims of politicians concerning immigration matter little. Rust Belt cities are very good at developing people.

In an area with unemployment at 10 percent or higher, it is surprising that Garvey sees his biggest obstacle in finding workers. But he argues that that's true all over the country.

"The biggest challenge a company our size faces – and companies much, much larger – is not raising capital for a $3 million tool. It's finding the skilled operators to run equipment on the off shifts," he said. "The qualified operators want to work 9 to 5 Monday through Friday."

This is an argument for improved training, better schools and so on. But it's much more than that.

"The labor component of manufacturing is being squeezed and squeezed to the point where it's going to be insignificant," Garvey said.

Garvey is exploring technologies to allow remote operation of machines and production processes that would give a manufacturer the capability to operate around the clock and around the world.

He doesn't envision such operations across acres of production lines. Manufacturing is moving away from "big box" factories and toward localized, massively customized shops.

In Garvey's manufacturing world, intelligence matters more than whether a shop is union or not, and whether taxes are lower at the plant than in the next jurisdiction.

On this [map], the darker the blue the larger the decline in median household income. North Carolina looks like a rust-belt state.

North Carolina looks like a Rust Belt state because parts of it were similarly dependent on manufacturing. That's the case throughout the Sun Belt. All the people moving to North Carolina glossed over those difficulties. The rise of Charlotte overshadowed the decline in parts of the state where manufacturing (particularly textiles) once thrived.

Much of the brain power that fueled Sun Belt growth came from the Rust Belt. There was little demand for home grown talent. If college graduates stopped coming, then North Carolina would be in a world of trouble. Brain gain in Scranton suggests that this pipeline has been slowing over the last decade. The new geography of innovation puts research and development right next to where knowledge workers are traditionally produced. The Research Triangle should be just as concerned as Silicon Valley.

I'm still amused that talent attraction expert Joe Cortright went to Akron to champion Portland. Portland should be learning from Akron, not the other way around. Cortright on a learning expedition would have been more appropriate. Why is Akron succeeding in dramatically increasing educational attainment rates? We know why Portland is generating a talent dividend. College graduates are moving there in great numbers. Will that remain the case in the post-migration economy? I wouldn't bet on it.

Monday, January 03, 2011

Brain drain is a big concern in New Zealand. There are a great deal of histrionics in the coverage of the country's talent "crisis". Over the past five years I've been blogging, various experts warn of New Zealand's looming demographic doom. Yesterday, I read an article that quoted a Kiwi who sees outmigration as an opportunity:

But business growth centre boss Andy Hamilton sees it differently. He wants young people to go offshore and doesn't mind a bit if they stay there.

The Icehouse centre he runs is a collaborative venture between Auckland University and several large businesses. Its website says it aims to take responsibility for delivering 350 of the 2000 companies needed to get New Zealand into the top half of the OECD by 2013.

"Our vision is to be the place for turning entrepreneurial companies into international successes."

Hamilton says that's about getting alongside businesspeople to help their talent pool increase and, in turn, the nation's prosperity.

"Our thinking is that we need more New Zealand companies building global success – and we need as many Kiwis offshore as we can get to help them."

It's a view that could be interpreted as supporting the Kiwi "brain drain", but Hamilton says he's seen a lot of Kiwis come home after creating a bit of wealth offshore who are not that useful.

The hysteria about brain drain has kept such economic development in the shadows. How could talent leaving possibly be good for the region? Retention initiatives won't save cities. Trying to keep people from moving will harm cities.

But even in Ohio's strongholds, there is cause for alarm. Within three years of graduation, one-third of Ohio's university alums have left the state, according to a study of the graduating Classes of 2006 and 2007 done for the Ohio Board of Regents.

Eric Fingerhut, chancellor of the Ohio Board of Regents, which oversees the state university system, is pursuing a plan to enroll more residents in college and hold on to those who do attend. One focus is to get more university students to do work-study programs while in school and take internships with Ohio companies.

Fingerhut's plan won't help Ohio. It's a boondoggle, a scheme to help justify state expenditures for higher education. Going to college increases geographic mobility. Regions and states have yet to figure out how to benefit from the increased prosperity for graduates who leave. Place is prioritized ahead of people. That's a stupid way to go about your business, benefiting your region at the expense of its residents.